NEW YORK (Reuters) - Oil tumbled more than 4 percent on Thursday after alarmingly weak Chinese industrial data and a bleak economic outlook from the U.S. Federal Reserve triggered the biggest commodity sell-off since May.
Brent and U.S. crude futures both dropped below the range held for most of the past month, in heavy trading that extended losses from the previous session after the U.S. central bank warned the world’s top economy faced significant downside risks.
Data showing private sector business activity in Europe and China, one of the most important sources of growth in commodity demand, declined sharply this month added to worries.
Stocks dropped 4 percent and the Reuters-Jefferies CRB index .CRB, a 19-commodity global benchmark for the asset class, plunged 4.4 percent in the biggest rout since May 5, as investors headed into safer havens such as the dollar and U.S. government bonds.
“We’re just not seeing any real signs of life out there economically. Traders are heading to higher ground,” said Rob Kurzatkowski, futures analyst with OptionsXpress.
“There is just a lot of doom and gloom out there in the markets.”
Brent crude lost $4.87 to settle at $105.49 a barrel, after dropping to $105.02 earlier, the lowest level since August 11.
U.S. crude was harder hit, settling down $5.41 at $80.51. It was the biggest one-day drop in prices since August 8, with prices touching $79.66 a barrel during intraday activity.
Heating oil’s premium to RBOB gasoline futures hit the highest level since January 2009, as weak demand in the United States dragged the gasoline contract down 4 percent.
Brent trading volumes again eclipsed those of U.S. futures, which have traditionally been the more heavily traded contract.
Nearly 770,000 Brent contracts trade by late Thursday, the heaviest volume since late June and 93 percent above the 30-day moving average. U.S. crude trading volumes totaled 723,000 contracts, more than 9 percent above that average.
Market players said with traders focusing on wider factors outside of the oil market, such as the euro zone crisis and the economic outlook, Brent was drawing more activity this week.
Brent is viewed as a better benchmark of global conditions, as high volumes of crude from Canada weigh down inventories at the U.S. Midcontinent, where the Cushing, Oklahoma delivery point of the U.S. contract is located.
“The focus on Brent has only intensified with these macro economic developments,” said Joseph Arsenio, managing director at Arsenio Capital Management in Larkspur, California.
“WTI is a contract that doesn’t relate well to most refiners, while Brent does. The prospect of a recessionary environment relates rather directly to the refiners and therefore to Brent.”
Data from No. 2 oil consumer China showed once-booming manufacturing contracted for a third consecutive month, while the euro zone’s dominant service sector shrank in September for the first in two years, intensifying anxiety about another global setback.
Commodities came under pressure on Wednesday after the Fed detailed additional stimulus measures to help push down long-term rates. Investors worried the latest plan would have little effect on lending and that there appeared to be few solutions to sluggish worldwide demand.
Benchmark industrial metal copper — viewed by some as a key indicator of future economic conditions — hit a one-year low on Thursday.
Gold, which hit record highs earlier this year as a safe haven amid the economic uncertainty, fell as much as 4.7 percent as investors rushed into the U.S. dollar.
Reporting by Matthew Robinson and David Sheppard in New York, Jessica Donati in London, Manash Goswami in Singapore; Editing by John Picinich